Wednesday, July 19, 2017

Agriculture v. Trump, Round 2: Steel Tariffs

Can agriculture once again dissuade Trump from dangerous and extreme trade policy? Last time it was withdrawal from NAFTA; this time it’s imposition of steel tariffs on national security grounds.

In a previous post, I discussed how agricultural interests effectively backed President Trump down from his promise to withdraw from NAFTA: The upshot is that half the land in the continental United States is used for agriculture, and most of that land is backed by mortgages and other loans. If agriculture loses, banks lose; if banks lose, Congress gets nailed; and if Congress gets nailed, Trump is on shaky ground. Besides, farm country largely voted for Trump, and Trump responds to that.

The agriculture lobby has once again lined up to urge Trump not to impose sanctions using the national security exception of Section 232 of the Trade Expansion Act of 1962.

What’s the Problem with Section 232?

Under that Act, the President may invoke a variety of trade sanctions for national security reasons if supported by a report (currently in preparation) by the Secretary of State.

But such action would be nearly unprecedented and would open Pandora’s box, inviting other countries to invoke national security exceptions under Article XXI of the GATT.

Since no framework exists in the multilateral trading system for distinguishing between "legitimate" and "illegitimate" threats to national security, the result could be trade bedlam. The entire multilateral trading system could quickly disintegrate as countries justified nearly any measure on grounds that it impaired their national security.

The press has given much attention to a letter to this effect from nearly all of the former chairs of the President’s Council of Economic Advisers, from Republican and Democrat Administrations alike.

The Underestimated Power of Agriculture

Less sensationally but much more importantly, a broad coalition of organizations representing production agriculture also sent a letter to Trump last week, urging him not to impose any sanctions based on the national security exception.

The agricultural groups emphasized that a copycat response by the international community could be devastating to heavily trade-dependent industries, including agriculture.

“U.S. agriculture is highly dependent on exports, which means it is particularly vulnerable to retaliation,” the agriculture groups wrote. “Many countries that export steel to the United States are also large importers of agriculture products. The potential for retaliation from these trading partners is very real.”

So is the potential for this letter to get serious attention from the Trump Administration. Much more so than a letter from a bunch of fancy economists, who are just the type of person Trump promised his voters he would get rid of.

The agriculture letter was signed by a wide cross-section of agriculture industry associations representing farmers of high-volume agricultural products from every major agricultural region, such as the National Corn Growers Association (Midwest), the USA Rice Federation (South), the National Cattlemen’s Beef Association (Midwest and West), and the U.S. Canola Association (Northwest).

Even the U.S. Apple Association, representing farmers of a perishable crop typically subject to different economic considerations than commodity crops such as grains and oilseeds, joined the letter. So did the conservative American Farm Bureau Federation.

Just as the prospect of losing the agricultural lobby seems to have swayed Trump from withdrawing from NAFTA, that prospect might also dissuade him from invoking steel tariffs under Section 232. If the threat of losing votes in his stronghold states isn’t enough, the pressure of the finance lobby breathing down the necks of Congress when faced with widespread debt defaults across farm country could – and should – nudge Trump away from opening Pandora’s box.

http://lawprofessors.typepad.com/inttradelaw/2017/07/agriculture-v-trump-round-2-steel-tariffs.html

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